In a move that could have far-reaching implications for the economies of Tanzania and India, the two nations have agreed to a new bilateral trade settlement arrangement that allows them to use their own currencies in transactions, the High Commission of India in Dar es Salaam said in a press release.
The new bilateral trade settlement arrangement allows for the use of the Tanzanian shilling and Indian rupee in transactions. India is one of Tanzania's largest trading partners, with bilateral trade valued at 10.4 trillion Tanzanian shillings (about $4.5 billion) for the year ending March 2022, according to the Indian commission.
Between April 2021 and March 2022, Tanzania's exports to India were estimated at 5.1 trillion Tanzanian shillings (about $2.2 billion), while the East African country's imports from the South Asian country were about 5.3 trillion shillings (about $2.3 billion), according to the Dar es Salaam-based commission.
Tanzanian banks and businesses will now be able to make full use of the new trade framework, allowing for seamless payment in domestic currencies, said Binaya Pradhan, India's high commissioner to Tanzania.
The Indian official expects that the use of local currencies will not only conserve foreign exchange, but also boost bilateral trade.
"There is a huge potential for our trade to grow. We are expecting our trade volume to cross $6 billion (Sh13.8 trillion) this year," Pradhan told Tanzanian media.
Tanzania exports minerals, particularly gold, and agricultural products to India, while India exports petroleum products, medicines, and engineering goods to the African country.
According to Donath Olomi, a trade and economist, using local currencies in trade transactions will help Tanzania avoid using dollars from its foreign currency reserves, boosting exchange rate predictability, which is critical in international trade.
"Unlike the use of dollars, of which we don’t have control over, with the use of local currencies there will be predictability because in the process, we can fix the exchange rate," the expert told Tanzanian news outlet The Citizen. "The use of local currencies will also simplify business transactions and cut bank charges since there will be no need to convert your currency into dollars."
21 November 2022, 10:24 GMT
The Reserve Bank of India (RBI) has authorized banks in India to open Special Rupee Vostro Accounts (SRVA) in Tanzania, according to a press release posted on the Indian High Commission's website. Tanzanian banks will be required to open SRVAs in India by approaching authorized Indian banks, which will, in turn, approach the RBI for approval with details of the agreement.
The Bank of Baroda, which operates branches in Tanzania, has received the RBI's approval for opening SRVAs for its foreign branches and subsidiaries in various countries, including Tanzania, the press release added.
This mechanism is now applicable to 18 countries, including Kenya, Uganda, Botswana, Mauritius, Seychelles, Fiji, Germany, Guyana, Israel, Malaysia, Myanmar, New Zealand, Oman, Russia, Seychelles, Singapore, Sri Lanka, and the United Kingdom.
The Indian High Commission is set to hold a stakeholders' consultation meeting on March 24 to reveal details of the bilateral trade mechanism using local currencies.